U.S. trucking firms see freight downturn reversing after dour quarter

Knight-Swift Transportation Holdings

25/08/2023 17:56

By Priyamvada C
       Aug 25 (Reuters) - The U.S. trucking industry may begin
to see an uptick in freight demand in the back half of the year
after grappling with another quarter of lower profits due to a
slump in package volumes, company executives and analysts said.
    The expectations have been largely fueled by U.S. retailers'
comments on their improving inventory position and prospects of
better inbound container shipments. 
    Companies ranging from Target  TGT.N  to Macy's  M.N  have
signaled that they have largely moved past their bloated
inventory issues from a year earlier as retailers look to stock
up on in-demand products ahead of the crucial holiday season.
    Meanwhile, a drop in volume of large containers handled by
U.S. ports compared to last year is also set to narrow in the
coming months, according to the National Retail Federation,
indicating retailers are preparing for increased demand during
the year-end holiday period.
    "Most of our retail customers have worked through that
inventory...so it does look like the freight markets have
troughed from a demand perspective," said logistics firm XPO's
chief Mario Harik, adding that freight markets could recover
into 2024.
    XPO, which serves companies such as Ulta Beauty  ULTA.O ,
said it saw shipment count and tonnage flip to positive in July,
indicating the start of a slightly improved freight demand
environment. 
    Old Dominion Freight Line Chief Financial Officer Adam
Satterfield also expressed similar views last month on
inventory.
    "We get the sense that inventory levels are normalizing a
bit," Satterfield said in an earnings call.
    Freight demand slumped last year after a surge during the
pandemic-induced shift to online shopping as customers returned
to stores and household budgets were pressured by sticky
inflation. 
    This led to retailers moving to stop an inventory pileup,
sending a ripple effect on trucks and railroads that move the
goods.
    "I don't know that we've ever seen freight demand fall this
far so fast and for so long without an accompanying economic
recession," logistics firm Knight-Swift Transportation chief
David Jackson said in a post-earnings call with analysts. 
    As a result, adjusted net income at trucking firms such as
JB Hunt  JBHT.O , Old Dominion  ODFL.O , CH Robinson  CHRW.O 
and XPO  XPO.N  fell between 22% and 69% in the second quarter
from a year earlier.  
    The second quarter was the most challenging for trucking
firms in recent times, analysts and industry executives said,
owing to high wage costs and ultra-low spot rates, or the
current market price for a one-time freight shipment. 
    But there is light at the end of the tunnel. 
    "We're still in the worsening part of the down cycle.. but
by the time we get into next year, we'll be returning to
growth," said Tim Denoyer of market research firm ACT Research. 
             
    Knight-Swift said a combination of demand recovery as import
volumes return to more normal levels and supply reduction should
lead to improving freight market conditions in the near future.
    "There are still some areas where retail inventories are too
high, but more and more categories will need restocking as time
progresses," ACT Research's Denoyer said. 
    Meanwhile, the demise of Yellow Corp, the third-biggest U.S.
trucking company, may also help prop up rates for rivals such as
XPO, FedEx Freight  FDX.N , and Old Dominion among others,
analysts said. 

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US logistics firms' profit fall    https://tmsnrt.rs/45IYwQ1
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 (Reporting by Priyamvada C in Bengaluru, additional reporting
by Aishwarya Venugopal; Editing by Sriraj Kalluvila)
 ((Priyamvada.C@thomsonreuters.com https://twitter.com/priyamouli1812?lang=en;))